Enterprise Resource Planning: How Companies Use ERP

Operations humming in unison, information flowing seamlessly, and decisions backed by real-time data: this is the ideal scenario for any business. However, achieving this level of operational harmony isn’t always easy.

Consider a retail business. Balancing the intricate demands of supplier relationship management and sales can be complex. But with an enterprise resource planning system, this complexity turns into a coordinated dance of efficiency. A retail business’s ERP might provide real-time tracking of stock levels, sales rates, and supplier lead times, enabling accurate and timely decisions.

This article will delve deeper into the benefits and applications of ERP systems, exploring their role in orchestrating business success.

What is enterprise resource planning (ERP)?

Enterprise resource planning (ERP) is a type of business management software used to oversee and integrate operations across an entire business. By consolidating various processes into a single system—like accounting, procurement, project management, and supply chain operations—ERP increases efficiency and data visibility across the organization.

How does ERP work?

An ERP system is a centralized hub for data from separate business processes—from supply chain management to human resources—ERP systems reduce the need for separate software for each department. ERP software is typically customizable, so you select the modules that fit your business needs.

Common modules in ERP systems include:

Supply chain management: Manages the flow of goods and services, from raw material sourcing to final product delivery.

Inventory management: Tracks stock levels, orders, sales, and deliveries to optimize inventory holding and reduce costs.

Project management: Aids in planning, executing, and finalizing project-related activities, ensuring timely completion.

Human resources: Manages employee information, payroll, recruitment, and performance reviews.

Accounting software: Streamlines financial tasks like accounts payable, accounts receivable, and ledger management.

Finance: Provides insights into financial performance and supports budgeting, forecasting, and financial reporting.

Order management: Manages the entire order process, including order creation, inventory checking, order fulfillment, and shipping.

Logistics: Improves the planning, implementation, and coordination of the storage and transportation of your business goods.

Sales: Helps in managing sales activities, tracking customer interactions, and sales forecasting.

By consolidating systems into a unified ERP software system, businesses aim to improve efficiency and collaboration. Here are some of the potential benefits of implementing an ERP software system:

Enhanced data analysis and reporting

ERP systems are typically equipped with advanced data analysis and reporting tools, providing businesses with critical insights into their operations. Through real-time data analytics, an ERP solution helps businesses track performance, anticipate market trends, and make data-driven decisions. ERP software can generate detailed reports, offering a comprehensive view of sales analytics and financial performance.

Streamlined processes across departments

With an ERP system, every department uses the same software. This integration ensures that information flows seamlessly throughout the organization, fostering improved communication and coordination. As a result, departments such as sales, finance, and operations can collaborate more effectively, leading to a more cohesive and productive business operation.

Better financial management

ERP software emerged out of the need for better financial management tools, so ERP systems typically offer robust financial planning and management tools. These tools provide comprehensive features for tracking and managing expenses, revenue, and profit. With an ERP solution, businesses gain better control over their financial operations, facilitating accurate financial planning, budgeting, and reporting.

Centralized data

Centralized data management is a core feature of ERP systems, providing a unified repository for all business information. This centralization ensures data consistency and accessibility, eliminating data silos and redundancy. A cloud ERP system, in particular, offers enhanced data centralization, allowing for real-time access to information from anywhere for operational flexibility.

Limitations of enterprise resource planning

High implementation costs
Initial complexity
Ongoing maintenance
Risk of vendor lock-in

While enterprise resource planning software centralizes and streamlines core business processes, it has certain limitations. Here are a few drawbacks to consider before investing in an ERP solution:

High implementation costs

Implementing an enterprise resource planning system requires a substantial financial investment. The costs include purchasing software and hardware (unless your solution is cloud-based) and paying for professional services for installation and configuration.

Additionally, training employees on the new system can be resource-intensive. For many businesses, particularly small to medium-sized ones, these expenses can significantly impact their budget and potentially delay return on investment (ROI).

Initial complexity

Customizing and integrating an ERP solution to fit your business’s specific needs can be a complex undertaking. Most ERP systems must be tailored to align with existing business processes and legacy systems, which can be time-consuming and technically challenging.

ERP integration with other software solutions used by different business units is often necessary to ensure all departments access the same data, adding additional steps to the setup process. As business operations evolve, the ERP system may require additional modifications. If using the ERP system is too complex, employees may stick to old systems.

Ongoing maintenance

Regular maintenance and updates are essential to keep an enterprise resource planning system running efficiently. This ongoing requirement often means additional costs and resources.

Risk of vendor lock-in

Choosing an enterprise resource planning software often leads to vendor lock-in, where a business depends on a single vendor. This reliance can limit flexibility, as switching to another vendor involves significant effort and cost.

Businesses must consider the long-term implications of this dependence, especially if the vendor’s future product roadmap or support services do not align with the evolving needs of the business. Additionally, if a vendor discontinues support or updates for the system, businesses may face challenges transitioning to a new solution without disrupting key business functions.

Enterprise resource planning FAQ

What are the top ERP system providers?

SAP, Oracle, and Microsoft are top providers of ERP systems.

Can you integrate ERP with Shopify?

Yes, ERP systems can be integrated with Shopify for seamless data synchronization and improved business management. You can also connect your ERP through Shopify APIs or native integrations.

How do you know you need an ERP system?

A need for an ERP system is indicated by disjointed systems, inefficient or manual processes, or lack of real-time data access across departments.

What are the three types of ERP?

The three main types of ERP systems are cloud-based, on-premise, and hybrid. With a cloud-based system, your business’s data is stored in external servers, while an on-premise system requires storing all of your data at your physical business location; a hybrid solution houses some data on-site and some in the cloud.